In today’s episode of The Solomon Investor, we dive deep into the topic of financial bubbles and the danger of hyperinflation. My special guest is joining us from Madrid, Diego Parrilla. Diego is a Managing Partner at Quadriga Asset Managers. He’s an engineer by training and has spent nearly 20 years in the markets. He has spent most of that time in macro and commodities trading at first including JP Morgan, Goldman Sachs and Merrill Lynch. He is also the author of the bestselling books “The Energy World is Flat” and “Anti-bubbles”. This episode is very important to investors today, because Diego and I will take the opportunity to explain common misconceptions that investors have about central banks, as well as going over the dangers of hyperinflation. Diego brings a fresh new perspective as he shares his knowledge on financial bubbles and the ideas that people have created about them.
In today’s episode of The Solomon Investor, we dive deep into the topic of financial bubbles and the danger of hyperinflation.
My special guest is joining us from Madrid, Diego Parrilla. Diego is a Managing Partner at Quadriga Asset Managers. He’s an engineer by training and has spent nearly 20 years in the markets. He has spent most of that time in macro and commodities trading at first including JP Morgan, Goldman Sachs and Merrill Lynch. He is also the author of the bestselling books “The Energy World is Flat” and “Anti-bubbles”.
This episode is very important to investors today, because Diego and I will take the opportunity to explain common misconceptions that investors have about central banks, as well as going over the dangers of hyperinflation. Diego brings a fresh new perspective as he shares his knowledge on financial bubbles and the ideas that people have created about them.
Key Takeaways:
Introduction to Diego Parrilla (2:17)
Major misconceptions investors are led to believe about central banks? (5:54)
Why was the central bank ever implemented in the first place? (12:43)
What is missing in how investors should be thinking due to monetary policy 3? (18:35)
Diego defines a bubble (26:51)
Common misconceptions people have created about the creation and bursting of bubbles (30:11)
What does building a fortress around our wealth actually look like? (42:32)
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Because we're not solving the problems, what we're really doing is, first of all, we are delaying the province we're kicking the can down to the next generation, you might have the perception that the markets are simple that things are okay. But the reality is that underneath all these forces are creating I mean that house prices are going higher, you know, your purchase power is diminishing. From a game theory perspective, you could argue that the system is defined and designed to fail, step above, build a fortress, or put walls up so that you have security around you have, take ownership, be in control, Own your identity, as the investor, don't listen to the majority, the masses will always tell you, the central bank, the leader of the of the sinking ship is always going to sink your ship. It's now time to gain that financial literacy, it's now time to step up and take that different position. Hey, this is another Solomon Investors show. I'm your host, Blake Templeton. And this is where we focus on the wealth strategy of the world's wisest man King Solomon, and translate it for you, the 21st century investor, covering everything you need to know for wealth, faith and excellence. In this episode, we will discuss wealth, from a position of always having a hedge of protection around your wealth. We're going to be processing the How should you think versus the what should you think now? What's The Solomon Investor for all of you who are new, this is where we look at King Solomon, he was God directed, he took control of his investments, and he created exponential wealth, he became the first trillionaire ever. And so he has so many different things we can focus on. And this is where when you gain this kind of wisdom, you'll be able to have peace in the middle of chaos, confidence in the middle of uncertainty, and most importantly, deal to build wealth, exponential wealth sustainably. King Solomon built a tall wall as a fortress around his empire. And it kept the financial enemy out for the entire 40 years of his reins. You and I want to walk in wisdom. And with our investments. We're going into unchartered territories. And this is the time this is the actual season to be building that hedge of protection. If you like what you're hearing take action right now hit the like button, so that can keep producing more powerful content for the kingdom marketplace. Then hit the red icon and subscribe to this channel. And last hit the bell icon. So you'll be notified every single time a new video like this comes out. Alright. No further ado, my special guest today is joining me from Madrid. This is Diego, how do ya. Diego is a managing partner of quadriga asset managers. He's an engineer by training he spent the last 20 years in the markets. He spent most of that time in macro and commodities trading. At first with JP Morgan Goldman Sachs, Merrill Lynch is the author of the best selling books. The energy world is flat and one of my favorites, the anti ball. There we go. Man, she's a former soccer competitor and tennis player. And he's passionate about foreign cultures and languages. One of my fun facts about Diego is he's fluent. I guess it's hard to say fluent in this new language is Spanish, English, French, and he's keen is a keen student of Italian and Mandarin Chinese. Okay. First of all, Diego, welcome to the show.
Thank you so much. It's my absolute pleasure to chat with you that many languages, your brain has to be on overload, like holding all the different mental frameworks and roles that each of them have. So, but to be fluent man. Props on I think i think languages are a bit like music. The first instrument is probably the hardest. But once you can play guitar, you know you decide to move on to violin or piano is not quite where you started from scratch in theory, brain circuits you know, open to this dynamics. And so I wouldn't say that the fifth language is way easier than than the second one. So I encourage people to go for it just sort of file it and and you know, I think it's it's fascinating as a way to Get to appreciate Amal different cultures. So a lot of linkages between music, maths and languages, in my opinion, they're all very closely linked in our brains.
But you know, and that's why this episode is so important. That's why I have you on the show is because your your mind as a petroleum engineer, you're coming from a whole different mindset. Most people as you know, in these unchartered territories, you know, they're listening to the central bank, who's lying to us, they're listening to the news, that's literally putting everything on the backburner not looking at the huge crisis we have. There's manipulation in the markets, and we have most of our mental frameworks coming from literally the propaganda that's just being presented. And so you're coming from a whole different mindset. You You see the markets in a whole different light, your your I love, the language is just plays into it, because you're from the mathematical side, the logical side, the emotional side, you're seeing psychologically, what can actually happen. And so I love that there's currently you know, a absolute Cliff that we have to do something about, and I appreciate this, this is really big on financial literacy, and I'm excited to pick your brain. Are you ready, Diego?
Absolutely.
Let's go. All right, here we go. So my first question ties into, you know, you saying that you hold a contrarian framework, to the complacency of the status quo, and the misconceptions surrounding the central banks and governments intervention with the financial markets. So what are the major misconceptions and false beliefs that you're seeing that many investors are being led to believe?
Well, there are quite a few. And I would say, perhaps the most relevant one is the belief that we can solve problems by printing money.
This idea that monetary policies have no limits, and that central banks are in control are all part of this, this big misconception, which is known as the central bank put or, you know, what I would put us, mommy and daddy are behind us. Yeah. And in that sense, the idea that we can print aware of a problem, and the second believes that we can borrow are aware of the problem. They're closely interlinked. But it all starts with this idea that central banks, I would say, in a somewhat reactive manner, we have built this game. I mean, this is not something new. It's something that has been cooking for decades, and whereby we every single time we have a crisis, we introduce certain emergency measures, whether it is let's bring interest rates to zero, let's print money, let's lend this money to governments and lend it to cooperate, then you bail people out, then you actually print money and put it in people's pockets. This is kind of too good to be true. And it is too good to be true. And so what are the issues that we're facing with this, this dynamic? And why is this becoming a major problem? Well, I would argue that the first thing we need to understand the first misconception is we're not solving the problems, what we're really doing is, first of all, we are delaying the problems, we're kicking the can down to the next generation, we are effectively taking debt that will have to be paid in one way or another. And that effectively creates this burden for future generations. The second issue with this massive amount of debt, which becomes harder and harder to pay back, is we are the second thing we're doing is we are transferring the product. So if you think about the the US or Europe, we are going to try to pass it the program to the neighbor, we're going to try to have a currency that is weak that allows us to be competitive in terms of exports, and bring investment etc. Now this so called currency wars, have a mirror image called trade Of course. So if you have like where abusive monetary policy having an artificially cheap currency, there may be nothing I can do other than try to defend myself and devalue, which is what they've all been doing. But at one point you do you say, look like if you divided by 20%, I will charge you by 20%. Yeah, so so the trade wars and currency wars are really mirror images of each other, they all come from this fact that I have a problem, I'm going to delay it, I'm going to transfer it. And then the third thing that's happening and this is accelerating, is I'm going to try to transform the problem. And the transformation of the problem is happening in two ways. The first one is inflation. So you'd like to think that my, the value of your money goes down, it buys you less and less. And this unfortunately, creates a huge issue, which is called inequality. So you might have the perception that the markets are simple, that things are okay. But the reality is that underneath all these forces are created, I mean, that housing prices are going higher, you know, your purchasing power is diminishing. And unfortunately, once again, it's an intergenerational debate. So those who are likely to have a house buyer in a stronger position than those who don't, because they may not be able to afford it. And when you put all these things together this idea that, hey, I don't want to take a hit, I don't want to, you know, suffer from this crisis, I'm going to do whatever it takes to try to solve it. With all their good intentions, their actions are only effectively making the problems bigger. And there's, again, this things happen incrementally. It's not something that you know, and then sometimes we do them in response to major crisis. But as you do this, and as you try to trade that borrow your way out, and you're effectively delaying, transferring and transforming the problem, you are, in a way, creating even bigger problems. And this is, again, the reason why, unfortunately, if you look through history, we see, you know, a lot of dynamics that someone like Ray Dalio will talk about in terms of, you know, geopolitical issues, or political crisis, or, you know, polarization and populism. And so there's something new. I mean, you talk about King Solomon, there's nothing new under the sun, many of these things have happened. And the bad news is, there's no miracles, okay? There's no miracles, you can just pretend that you can print and borrow your way out.
Yeah, so many positive things. So with that happening, we're but that's our system right now. Right? There's a one speed and it's the only bullet left in the gun. We've already lowered interest rates. We've already done everything else we can do to manipulate and have the seat position. We have our zombie companies now as a as a fruit of that labor. We're seeing everything unraveling. And with what are the investors missing? Like, let's go here. Why did this central bank ever get implemented in the first place?
Well, the concept of mine is the history of money is fascinating, right? Once upon a time, we were binary, right, your chickens for whatever would. And obviously our convenience, we created certain things that we could trust and that would favor trade. And there's a few magic points in history right where the figure of the central bank as people were exchanging, think about initially the coins, the value of a copper coin didn't have a number. The value of the copper coin was the copper. The metallic value of the copper and a gold coin was developed in a tank with the gold right it's only once the central banks kick in that they discovered these magical concept called Sydney arise. Sydney arise is the difference between how much it costs to print a coin or even worse for note or a bill. A 500 euro note, how much does it physically costs to build? Right let's see. Let's say that it costs one set, right? Okay. This is magical. I'm the central bank. by spending one cent in paper and ink and a tiny little bit of some shiny stuff, I bought myself, I can go to the supermarket and buy real chickens and milk and whatever. Or I can actually give that to my government. artificially low interest rates in infinite amounts, so that they go, and they pay and finance wars, or they finance as furniture or they finance chairs to people. And that thing called senior hours is incredibly powerful, right. And in the process by which we have been captured of faith in design, it's a gradual, so once upon a time, you know, let's say that we have a lot of gold. And, you know, we said, okay, instead of just passing the gold coins around, why don't we keep them in a safe place, and we should piece of paper. But guess what, these pieces of paper are backed by real physical gold somewhere. And so once upon a time, we've had, paper money was a convenient way of moving away from metallic money. But people only accepted paper, because it was backed on a one by one basis to something called physical, right, the next set was luck. It's the oldest still there. But you can't just go to the place and exchange it for free. Because you know, it's not convenient for us. But don't worry, because we guarantee that there's one for one. And so slowly, the government is sort of inch by inch gaining ground, people are comfortable to accept a paper, and then take the major step, which is look, on a short term basis. I know that was 100 units of gold, but there's a war, we really need a bit more money, let's print some money that is not quite backed by gold, but we'll fix it later. Whatever. Right? Right, right. And then the moment you go into into Fiat, you start moving into the ability to print money out of the blue.
This introduces all sorts of funny the technology like interest rates, and the brain, or the systems of their plants, where we need to give more money to the system, so that we take it off. But the entire system was based on the independence between central banks and governments. This is very much like the independence between church and state. Okay, or the independence between the law or the judges and the government. So it was a very fundamental piece to basically trust that the central banks will do what is right, without being manipulated or influenced, right, that anybody tell me that Jerome Powell? Or is it to Sinhala guard, or any other counterpart is independent. It's not independent. It's a job. Of course, they're not they are being in a way appointed and told. And so some of the basic principles that drives this, this movement of how the history of money has evolved, are being violated or being broken. And therefore, this is something that from a game theory perspective, you could argue that the system is defined and designed to fail. Yeah, because, of course, if we have a crisis, what are you telling me about that? If there's a big hurricane or a big crisis, we shouldn't have to, of course, but the problem is, all these things get done. Again, they get what is temporary, because permanent, what is no, this is just gaining ground in a way that, you know, you end up in I know, it sounds like science fiction, but you end up in situations like Venezuela, or Argentina, or Zimbabwe. Where when do you actually stop and use? As you say, I think that's a really good point. Because if we begin with the end in mind, or use like that, Argentina, that Japan mindset, and you realize, like, what, how did they get to that point? And you realize, wait, it's the exact same system, then you'd be able to reverse engineer that and say, well, that's where we're going. It's I really appreciate that mindset. So what is missing? Why are investors still deceive thinking? Because you just made it very, very clear, that there's no reason why you should still be buying into the system that it's safe, its secure. The printing the money is not is not eluding your, actually your asset, there's not an actual bubble happening, what's missing and how and how investors should be thinking due to monetary policy due to what's happened know, most recently, but I think there's a very simple example that will will make the case simpler to understand that it is what I always use the analogy of the frog in the boiling water. That's great. Yeah. And what it means is number of times, but apparently, apparently, if you take a frog, and you put it in boiling water, it will jump. But if you put it in mild water, and you're heated 70, you will, it will die, basically, boiling. Now, I feel that we're all straws in the monetary broth. What it means. And the reason why central banks have a 2% inflation target. It's not a random number. It's a number that has been scientifically calculated, so that over 10 years, the compounded effect of 2% per annum effectively seals, you know, north of 20% of your purchase power. Over 20 years, this gets closer to 45. Or over and inflation accelerates even a little bit from two to 3%, you will cross you will literally lose over 50% of your wealth in a relatively short period of time. I'm older than you. And I always say that 20 years is not what it used to be 20 years system be a long time. I'm 4720 years feels yesterday. So of course, you are looking at the 2%. It doesn't look like like a problem. It really compounds. And there are a great point. Because first of all, one of the big fallacies is that we've been made to believe that inflation is 100 the economy, this one thing called inflation, CPI and PPI or whatever, and it's 1.32%. And it will go up by 0.2%. Whatever. Right, very robust. Your inflation Bostic plate is different from mine is different from any of the guys. I mean, my boys are going into university now. Maybe someone has babies with nappies, somebody else has different needs. All our inflation baskets are different. Here in Texas and in Spain, we have different currencies, we have different a lot of things. So it's not like there's 7 million inflation baskets, but certainly there's not one, for sure. That's the first first problem is they're kind of making us believe there's one. The second thing is that one is grossly manipulated. It basically has, it doesn't have anything that you really need. It doesn't have housing, doesn't have a healthcare, it doesn't have education, it doesn't have a lot of things that are very much needed. And on top of that, you have this this other factor. So I think, ultimately, the problem becomes inflation has really two legs. One is real inflation, two plus two equals four. So we just printed dynamite, and we can sort of get a feel of how much dilution, we're getting through this money printing. It's not quite maths, two plus two equals four, right? But then you move into the second stage, which is inflation expectations. So if real estate in Texas starts going up by 10, to 15%, a few people are going to start getting a bit nervous, like oh my god, I go to buy it now because my next year is gonna be and you don't have to pay the offer and then my neighbors and so inflation expectations actually accelerate and create an even bigger process. If you think about Latin America. You know, the famous pictures where your the supermarket says bread 100,000 scraps. $150, right?
That's not because the central bank didn't born and printed a 50% more money. It's just the absolute desperation knowing that the money will buy you nothing, because let me explain something very, very simple. Okay. There's a massive debate going on between deflationists and inflation's are basically and the argument from the deflationary setting were both correct. Okay. The deflationary argument is literally about this so many things that are deflationary. We have an employment, we have a weak economic activity. We have something called technology, which is very deflationary. We have demographics, we have overcapacity. malinvestments, we have bubbles, all these are deflationary forces, you know, you need to buy a bigger TV, you know, or the multiple ways to do it. Right? There's one single inflationary force, one, that there's obviously many of those, but there's one that is effectively offsetting them all, which is called money printing, because inflation is not about the value of your bread going up for your house going up. Inflation is about the value of the money with which you buy bread and the house going down. And this is really what's happening. It's diminishing in the value of the money. That makes crisis inflect. It's really about the numerator versus ignoring the denominator, right. So this is the issue with money printing, and everything associated with it comes from this privilege of central banks and this to Neeraj and this fact that the lack of independence allows central banks to print money and give it to governments. The third is zombification. And this all has effects, which, as I said, are not so good. They're really the length of starting transforming any large in this province. Yeah, that's a really good point. Again, most people are, you know, like you said, they see it linear, and they see the item, you know, and they say the item, the price went up. And it's a fantastic point, because you're just pegging it to the US dollar. So when the value of the dollar goes down, and the power of the dollar goes down, then it takes more of that thing that you pegged it to. So it's a beautiful picture, the frog in the lukewarm water. That's a wake up call for you guys listening, you have question your assumptions. So this is some really good time to just marinate and question your assumptions. How did we get here? Where am I? And where do I want to be as a Solomon Investor? Diego, you are renowned for your work, and analysis of bubbles. And of course, you know, the book, the anti bubble, which has some really strong nuggets that really transform the way you think. So let's just start out go. Let's go back to the foundation. Let's define a bubble.
What's a what's a bubble?
bubble is effectively an artificial set up by which valuations of a certain asset are artificially high is that this artificial valuations come from a belief that might be widely accepted, but it happens to be false. what is known as a misconception. So bubbles are basically dynamics where the emperor has no clothes. Really, everybody thinks this thing is magical, this medicine is going to save the world, this painting is worth whatever, there's some element that is basically false. So there are calls, in many ways just because expectations might be too high for the bubbles just because, again, he was a completely flawed assumption, or simply because the world has changed. It could be it could be many things. So it's almost like a floor under you. This appears when I mentioned the boat, what I when I coined the concept of anti bubble, which I'm very proud to say it's been now widely adopted and accepted and, you know, Financial Times The Wall Street Journal for which I've done multiple contributions. You said, what I did as an engineer is a generalized framework. I said look, misconceptions distort reality, but not only is your artificially high valuations, which we call models, they also can create artificially low valuations, which is what I call an anti bubble. And the dynamic is very, very powerful, because the first mention is the fact that empty bottles or anti bubbles, the data or the data because they are giving you giving us artificially cheap valuations is a matter of when Not if that just like bubbles will implode, that anti bubbles will go off. So you have something that is an extreme form of binary. Okay? The second hugely important dimension, and you refer to Solomon and building these bridges is this idea, the anti bubbles by construction, because they're like a mirror image of the bubble, they can be a very effective defender against the bubbles. Okay? And so, the key when you think of a bubbles and the bubbles is you need to look for the missing section. You don't need to look for numbers you need to look for what is the belief that is actually wrong. Okay. And, and that's where, sorry?
Yeah, that's good. So let's just like, let's just hit the nail in the coffin right now. Like, what are the misconceptions that people have, you know, created, you know, on their receiving about, you know, the creation and bursting of bubbles? What's the misconception there? Really, there may right now one one is, we've created this, we've talked at length earlier on the beef in the central banks in mummy and daddy, in the ability to solve problems by printing money, without creating inflation, with the ability to solve profitability, to borrow infinite amounts without having to raise taxes, or without having to worry about repayments, et cetera, is this very convenient view of the world? So these are misconceptions. I'm sorry, guys. It doesn't work. There's gonna something's gonna give. Okay? So related to this, and this are so powerful and so deeply entrenched, that they're dragging some other beliefs and misconceptions, which are actually quite dangerous. One of them and they all have acronyms, right. So we could go through things like FOMO, right? fear of missing out, you see your neighbor, whatever, making a ton of money in crypto or equities or NASA, you obviously have Tina, there's an alternative, like, what am I going to do with my money, I can leave it there. Look, Europe, the bully, the financial bullying that we're suffering has taken us to negative interest rates, leaving your money in the bank means you're effectively being deployed, you're paying for giving money in the bank system. And this is all a what we would call nominal terms, okay. So you're confident in your mind what you see. But when you factor in inflation, is even worse, not only your 100 euros are effectively getting less than 100. It's, it's fine, you less because of inflation. So ultimately, many of these beliefs and misconceptions are interlinked. But I think if we fast forward into the end game, unfortunately, what we've done to the past few decades is this, all these beliefs are creating bubbles are inflating the artificially inflating the value of assets to the point that they are too big to say, think about that there's no return. Think about what would happen if interest rates went to 5%? What would happen to our listeners mortgages? What would happen to the ability of companies repaid back their debt? What would happen to the governance, okay, and if we did a little bit of history, not recent history, okay. Back in 2007, prior to the crisis, interest rates were about 5%. And it was actually a very flat term structure meaning the interest rates in the short term of 5% 10 year interest rates were 5% 30 year interest rates were 5%. It was considered to be a fair value. Ever since the crisis and the extraordinary measures that we took by bringing interest rates, zero, printing money and giving it to governments for free, what is known as quantitative easing. A few years later, we said okay, guys, we seem to be out of trouble. Okay. Yes, we've taken in our experts, percent more debt. Now. I still have 100, we have 200 or 300, which depends on the company or the government, right? Let's just let's just normalize things. And and effectively happens what I would say is like, Look, every listener or viewer in this, this call can afford a trillion dollar mortgage. At zero.
Interest rates went up to 0.1% worldwide. Right, right. Okay, so at zero interest rates, anybody can borrow any amount. The problem is, can you really bring interest rates back to normal? And what's happening is this cap This road is one way. There's no return really dependent. And so what happened in 2018? You remember when Jerome Powell was on the pylos, saying, We're hiking interest rates, interest rates were 3%. You know, my friends, you know, had three or four times pricing in the last few months. It was like, yeah, we're going back to normal, guess what? What you could afford the amount of debt, you could afford the 5%. Now that you've increased your debt, a lot of 3%, you're able now? Yeah, bro. You haven't grown your business. But if I change that, and today, this call is so relevant, because we are testing again, where is that level where we blow up. And the 30 year Treasury today is hitting 240, right, close to 240. And mindful of the amount of incremental debt that has grown through COVID. And the last couple of years, we may not be that far from the levels where the system basically says, guys, if if the cost of borrowing increases, I mean, obviously, the short dated cost of borrowing is that you have to three years is almost zero. But the curve steepening, and if you wanted to borrow for 10 or 30 years, you're gonna have to pay a massive premium, because the market is basically saying, Hey, Mr. Biden, great, thank you for the check. How are we going to pay for this? What does it mean, in terms of inflation? What does it mean, in terms of taxes? What does it mean, in terms of the ability of the US government to pay back? Other than by printing? more dollars? Right, right. And, and that, check that is we've made on the bluff from the central banks, like, okay, race, you is putting the market at another critical point, this, we are making history as we speak, because we're having one of those moments where the system is trying to say, look, if you keep doing another 1.9 trillion, another 1.9 trillion, another 1.9 trillion. How is this going to end? I mean, how does this look in 30 years, and then Sue, and the issue we have is very relevant, because I'm going to go slightly technical, but I think it's important to understand as interest rates go up, the present value of anything included goes down. So if I was, you know, if I have a business that is going to generate $100, every year for the next 50 years, if interest rates were at zero, it means all those $100 in 50 years are just as good as $100 today, but as interest rates go up, I rather I mean, I rather have the person value that is going to be lowered. So the issue and the reason why they asked it is very nervous, is because as interest rates go up, and bonds are collapsing, you have a situation where all those growth stocks that are discounted this amount of growth and discussions in the future, and profits that don't exist, are being questioned is like it doesn't have to be worth less. Plus, you have an alternative, which is why would I give money to someone with a lot of risks if I can give it to mommy and daddy for and with this recap. So we are a very interesting point in markets where we have, we're seeing the red flags, in terms of which goes back to your point on on building the walls. Be careful with the complacency. Be careful with the fear of missing out. You know, one of my favorite quotes from another price is be careful when you follow the masses, because sometimes the M is silent. So you need to be really careful with this herd mentality that could be pushing people into doing things that may not be that sensible. And that's why you're called for independence. We're thinking about the framework for understanding what's happening well and beyond what your neighbor said or did and being prudent. It's it's very critical, but we don't have a crystal ball. I'm just avoiding a crystal ball we can come up with clear concrete So what might happen? And from a game theory perspective is very obvious. The way we're going to see that which happens, how far distance thing goes is very tricky. And that's why, you know, I think it's very important to have truly balanced portfolios, right. And I think this is where by, sometimes my analogies command and portfolio construction, were happy to talk about this sense, if the might be of interest as well.
That's awesome. So and, and that's fantastic. And before we do that, I'd love to wrap up with that. And before we do that, I think where most people end up being at this point is they they hear it. So let's just, let's give some examples. So we have lots of people who have, you know, multiple, seven figures just sitting in the market, they hear this. And they, they feel like there's no other option. So then they discount it. Instead of saying, like, call a timeout, cut the emotion, step back, become a third party consultant, asked the quality questions, become a Solomon Investor, think like King Solomon, step above, build a fortress, or put walls up so that you have security around you have take ownership, be in control, Own your identity, as the investor, don't listen to the majority, the masses will always tell you, the central bank, the leader of the of the sinking ship is always going to sink your ship. And so everything you're saying is so good, because it's, it's helping everyone wake up. And so for those of you listening, I want you to really realize that what we're talking about is what Michael Gerber was saying, which is, you know, the natural condition of man is to fall asleep and become a machine. And because you don't understand something is not the reason why you would follow the masses. It's now time to gain that financial literacy, it's now time to step up and take that different position, the position that's actually different from the masses, because the masses are under what Diego's saying the central bank system is broken, and they're going to deflate it, or they're going to suck out the life of it, and then they're going to push more money into it. But that then dilutes your dollar, which means you have less buying power, and then they're gonna suck the life back out of it, and then they're gonna print more, that's the only thing they can do to try something that, as we know, still don't work. So what Diego is saying is look at the past, and we know that didn't work, it's never worked. And he's saying even you're gonna get the negative interest rates. I mean, we couldn't even imagine a negative interest rate in your savings account in your bank account. Ah, crazy. So with that said, Yeah, so let's talk about, you know, the, if we're going to build a fortress, because Diego, what you're saying is, man, we are leaning toward today's market looking and comparing, just like what happened in 2008. But, but way worse. Yeah. And, you know, on another interview with wrong, pal, you're mentioning, man. I know that three to five years out, there's going to be some winners. But I have no clue the next three to five months, because there is massive, unchartered territories. And so that's where we've got to be wise guys. So we've got to build those walls around our I mean, you've spent so much time creating what you have. This is not the season to be playing with it. So yeah, so give us more of what is it?
How will we be thinking in the building a fortress? What does that look like?
The first thing to understand to sorrows with what you just said. There's been a change of rules in the game on my desk as these things progress. And so one of the things that has happened is, as we have effectively manipulated and brought artificially low interest rates, which has in turn created artificially low credit spreads and artificially low volatility. One of the things that's happened is that we've created a major risks, which is what I call false diversification. And this is absolutely critical for me. In this call to understand that is why we is the difference between having a portfolio with a bunch of things. So I have some equities, I have some credit, I have some high yield, I have some commodities, I have some private equity, it looks like you're diversified. It looks like you're diversified, because you have a lot of things. But unfortunately, when you have a crisis, every single thing false at the same time. Great point, this is what I call false diversification you have, if I was going to bring the soccer analogy, you could use any sport of your liking. But soccer is that thing that the US ladies are very good at us. And the guys are not bad if you have strikers that score goals, you have it filters, and then you have bullies or goalkeepers. And when you have a portfolio that is only trying to score goals, and he has no defenders, what happens is you're you suffer from this false diversification once you're attacking, you'll have a very strong offense. But this is not a game of effectively making money. It's a game of protecting that money, those walls that you're talking about. Warren Buffett has this two rules of investing are very famous. Number one, never lose money. Rule number two, never forget rule number one. Now, let's not fool ourselves. It doesn't mean don't lose money. Because here's the first one, you can lose money. And that's the nature of the business. What he really means is you have to protect your capital. Because without capital preservation, there's no compounds. Right? If you lost 50% of your wealth, your $100 are now 60. To make it by you need to earn 100%.
Yeah, I really appreciate the heart of rebalancing. Most people never rebalance. Diego, I get it all the time, where people say, yeah, I've been with my money manager, my guy, he's my relationship. But you know, we've been together for 2530 years, and I would never take money from him as if, as if you're like, supposed to feed the guy. No, I love the idea. You got to rebalance, you got to be a king, you got to step up Own your domain, you got to do what's best for you. That's why we walk in God's wisdom. You know, as fellow Christians, it's like, Man, you got to get this, that Christians are not to be passive. And they give their money to a guy who does not defend their money.
So one of the the key directions is think about your work holistically. Are you yourself striker or defender wants you to profoundly make sure that you look for help for people like ourselves that when you outsource bookkeeping, it's just not easy. And try to have that balance in with the right players, and also is hugely important. The concept of rebalance. Okay, this is critical to understand because most people don't get
Yeah, Diego, you have some really strong points. I love the soccer analogy. Even for those that's what's so beautiful is those who don't even play soccer. They get the analogy like that makes sense. And you know, so guys is a Solomon Investor, ask these questions, you know, in my investments, maybe you're in the public market. And the Aygo made really clear if you get that bathtub, and the bathtubs, your stocks. what he was saying was, that's your bond, that's your stocks, it's anything that public market, and back in 2020 of March, if those fell, then they all fell, then clearly, they're all correlated, high correlation. So that's bad, very bad, because they're not diversified. So false diversification. So really good points Diego, and as a Solomon Investor, that's why we only invest in places where our investments have a hedge of protection. And they have the actual offensive approach the defense and the offense. So it's a strong analogy, really appreciate that Diego. And it's a quality question of, you know, in our financial literacy, we've got to continually be asking, do I have my hedge? I have my protection my walls my fortress, like King Solomon, like goalkeeper and do I have my strike? You can't just have one or the other. That's why, as a Solomon Investor, this is the mental framework Diego that we actually hold. I love it.
Because as a coach, you know if this was a football match, this is a game where your portfolio is your team, you're the coach, and you need to decide, how are we going to play? Which players Am I going to put the pitch and how I'm going to rebound? If you do this, and you have the right team with the right players and the right rebalancing, you will make money throughout crisis without any stress or emotion. If you're trying to if you pretend that this is a game of having a crystal ball, where I'm super smart, oh my god, I'm chasing the market up now. At the bottom. It's the end of the world, it's gonna be 99. And then I sell everything and then oh, my God, I missed out. Honestly, it's impossible. So this is just very simple and very complex. It's Can I object to create the right deed, pick the right place and revise. And the last piece is inflation, which is already we'll be talking about how do I adjust my team so that mice strikers infielders, and goalkeepers benefited from one of the most obvious trends. It's so important to understand the changes in the pilot and shift so that you create the right team. And you give yourself avoid trouble and pick the right face so that you're better position to to fight this in this game, which is extraordinarily difficult. Yeah, it's so powerful. And it's, you mentioned that being a game you mentioned and being a battle, I can feel your conviction. And I love the conviction because that's what we have to do right now is realize everything has changed. I mean, you even mentioned you know, the Ray Dalio is the world their whole entire portfolio had to be completely rebalanced. I mean, everything shifted because they had constants that turned variables and so you guys listening?
I'm gonna steal that from you.
Guys, everything's got to be rebalanced. I mean, there's a call for a war, there's a truth on the other side coming at you. And this is not a season to be passive. This is a season call a timeout, cut the emotions, come a third party consultants and ask the quality questions. And so I appreciate that appreciate your wisdom in the mindset of bubbles, the mindset of you know getting to really iron sharpens iron on on who the bad guys are, and realizing you don't want to be in the masses because those are the ones the bad guys are leading us into the masses and you don't want to be on that team in your investments. And so building your own team realizing you got to have control you got to have independence from that public market, you know, big basket yet some really strong points of how if you're in the big basket, if back in March of 2020 if you saw what happened just take a quick timeout call you know, cut the motion see what happened. And that would mean if everything fell which if you were in the public market in the big baskets everything fell then you have to rebalance. I mean, your life depends on it financially so Diego so appreciate this time, guys, the book the anti bubbles, powerful nuggets. It's a sweet perspective from a Spaniard with so much of our Solomon Investor mindset for wisdom, looking to build a fortress around what you already have, and to still be able to grow it and not not not take in all the propaganda that's being presented. So they go so appreciate you my man. How can my investors find the book to go books are widely available in Amazon and whatever in the world is flat and empty bubbles. If people are interested on the ideas or the strategies basis thing is look me out either in Twitter or in LinkedIn is Perla with a double r double l? I look forward to connecting and staying in touch. So most importantly, must have to all is a very tricky times. I hope everybody will be healthy and I very much look forward to to have much success and cooperation together. So thank you, Diego, thank you so much for your time, my friend. I really appreciate your wisdom and your thoughts on how to think as an investor For those of you who now want to take those next steps, we have live webinars coming up for how you actually invest, how to invest right now in offerings that actually create that team. Create that team in this current unchartered territory, support your cell phone. And I want you to text the word Solomon to the phone number 31 996. Again, text the word Solomon to the phone number 31 996. And we look forward to you being on those live webinars to actually get into the trenches of where do I invest right now that rebalances my portfolio with the goalkeepers and the strikers. This is another Solomon Investor Podcast signing out to your success be great.